The corporate restructuring plan identifies the number of

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Reference no: EM13596522

The Rump Organization ("Rump"), an SEC registrant, is a commercial real estate company that purchases and constructs commercial property. On the basis of the corporate restructuring plan, Rump's CEO, Ronald Rump, and Rump's board of directors approve a plan to terminate 100 of the company's employees. The plan provides for each terminated employee to receive a lump-sum cash payment equal to one month's salary only if the employee voluntarily signs a waiver of any right to legal action against Rump. Consistent with Rump's past practice, employees that refuse to sign the litigation waiver will not receive any of the severance benefits. Consider the following additional facts:

• The corporate restructuring plan identifies the number of employees to be terminated (i.e., 100), the job classifications and locations of each employee to be terminated, and the expected completion date of January 31, 2006.

• The plan was approved on December 27, 2005, by Rump's board of directors and Rump's CEO, Ronald Rump.

• The plan allows employees to leave Rump at any time, but no later than January 31, 2006. The employees must sign the waiver no later than January 31, 2006.

• On December 31, 2005, each affected employee was e-mailed a summary of all the plan's terms, which included the amount of severance benefits the employee would receive upon termination, subject to signing the litigation waiver by January 31, 2006. In addition, Ronald Rump personally visited all 100 employees just to tell them, "You're fired!"

• Rump believes it is unlikely that significant changes will be made to the plan or that the plan will be withdrawn before its execution.

• Rump does not have a general policy regarding severance payments made to employees terminated without cause; however, it has in the past offered one-time severance benefits to employees being terminated as a result of workforce reduction plans. The amounts and terms of the past one-time severance benefits varied according to the specific facts and circumstances at the time of the terminations and were limited to a specified termination event or specified future period.

Required:
• Should Rump recognize a liability for expected employee termination benefits as of December 31, 2005?

Reference no: EM13596522

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